Import, Export Prices Show Collapse of Trade
Economic Report Monitor #14
April 14th, 2020
After a Monday with no economic releases, Tuesday rolls on relatively quiet with just a release on import and export prices in the month of March. Stocks continued to rise with a slight decline on Monday offset by a larger move upward on Tuesday. Optimism from policyholders continues to drive the bullishness while bears wait for economic data more representative of the effects of the lockdown to be released. It seems the financial world is at the brink of a collision between expectations and reality. Both are filled with heightened levels of uncertainty in uncharted territory.
As seen in today's import/export price report, pricing in trade is likely to become soft with foreign demand being subdued due to travel lockdowns and lower demand from domestic business activity lowering. The World Trade Organization (WTO) released its new trade forecast for 2020 on April 8th after digesting the initial reactions to the COVID-19 outbreak, and it expects world trade to fall between 13% and 32% in 2020 (a wide range demonstrating once again how much uncertainty is at play here). In particular, the WTO sees Asia and North America hit the hardest with "complex value chains, particularly electronics and automotive products" being the sectors affected the most. If the current forecasts were to materialize, the slump in global trade would officially be worse than the decline seen after the global financial crisis in 2008-2009.
The effects are already visible in March as US import prices fall -2.3% and US export prices fall -1.6%. The steep MoM declines send the YoY changes to -4.1% and -3.6% respectively. Imports, notably, were affected by the drop in oil prices as fuel imports fell -26.8%. Nonfuel imports were mixed with various industrial goods and consumer goods indexes seeing different movements in demand. Intermediate goods like building materials, non-engine auto parts, and unfinished metals saw increases above 1.0% as manufacturers likely attempted to stock up on inventories in anticipation of a slowdown in trade. Finished consumer goods were softer, down -0.3% driven by a -6.6% move in diamond prices. Food import prices were even wackier as the price index fell -1.0% as, "a 12.9-percent decline in vegetable prices more than offset a 7.0-percent advance in fruit prices."
Exports continued to be hit hard down -1.6% in March after seeing a -1.1% decrease in February. This was the largest monthly decrease since January 2015. With lower demand likely the cause Agricultural exports lagged -1.4% but were ultimately mixed. Nonagricultural industrial supplies and materials prices fell -4.6% again mostly on -13.2% decrease of fuel-related export prices. In nonfuel exports, a trend similar to imports arose with intermediate goods mostly positive and finished consumer goods prices down -0.6%. As the lockdown effects continue, it's likely that a collapse in foreign demand will see export prices drop further.
In the dynamics of trade with China, the pattern of inventory stocking increasing demand while finished goods demand dropping emerges again. Import prices from China rose 0.1%, the 3rd increase in 4 months. With China's status as a crucial link in the supply chain, factories anticipating a near-term trade slowdown might have attempted to secure more Chinese intermediate goods to bolster inventories. Meanwhile, exports to China fell -2.3%, the largest 1-month drop since December 2017. This was likely caused by a broadbased decline in US trade activity as more countries saw similar export pricing dynamics. Exports to Japan fell -3.4% and to Canada and the EU fell -1.9%. The effect was also likely exacerbated by a recent increase in oil and gas exports as domestic production remained around all-time highs for almost a year now.
After a Monday with no economic releases, Tuesday rolls on relatively quiet with just a release on import and export prices in the month of March. Stocks continued to rise with a slight decline on Monday offset by a larger move upward on Tuesday. Optimism from policyholders continues to drive the bullishness while bears wait for economic data more representative of the effects of the lockdown to be released. It seems the financial world is at the brink of a collision between expectations and reality. Both are filled with heightened levels of uncertainty in uncharted territory.
As seen in today's import/export price report, pricing in trade is likely to become soft with foreign demand being subdued due to travel lockdowns and lower demand from domestic business activity lowering. The World Trade Organization (WTO) released its new trade forecast for 2020 on April 8th after digesting the initial reactions to the COVID-19 outbreak, and it expects world trade to fall between 13% and 32% in 2020 (a wide range demonstrating once again how much uncertainty is at play here). In particular, the WTO sees Asia and North America hit the hardest with "complex value chains, particularly electronics and automotive products" being the sectors affected the most. If the current forecasts were to materialize, the slump in global trade would officially be worse than the decline seen after the global financial crisis in 2008-2009.
The effects are already visible in March as US import prices fall -2.3% and US export prices fall -1.6%. The steep MoM declines send the YoY changes to -4.1% and -3.6% respectively. Imports, notably, were affected by the drop in oil prices as fuel imports fell -26.8%. Nonfuel imports were mixed with various industrial goods and consumer goods indexes seeing different movements in demand. Intermediate goods like building materials, non-engine auto parts, and unfinished metals saw increases above 1.0% as manufacturers likely attempted to stock up on inventories in anticipation of a slowdown in trade. Finished consumer goods were softer, down -0.3% driven by a -6.6% move in diamond prices. Food import prices were even wackier as the price index fell -1.0% as, "a 12.9-percent decline in vegetable prices more than offset a 7.0-percent advance in fruit prices."
Exports continued to be hit hard down -1.6% in March after seeing a -1.1% decrease in February. This was the largest monthly decrease since January 2015. With lower demand likely the cause Agricultural exports lagged -1.4% but were ultimately mixed. Nonagricultural industrial supplies and materials prices fell -4.6% again mostly on -13.2% decrease of fuel-related export prices. In nonfuel exports, a trend similar to imports arose with intermediate goods mostly positive and finished consumer goods prices down -0.6%. As the lockdown effects continue, it's likely that a collapse in foreign demand will see export prices drop further.
In the dynamics of trade with China, the pattern of inventory stocking increasing demand while finished goods demand dropping emerges again. Import prices from China rose 0.1%, the 3rd increase in 4 months. With China's status as a crucial link in the supply chain, factories anticipating a near-term trade slowdown might have attempted to secure more Chinese intermediate goods to bolster inventories. Meanwhile, exports to China fell -2.3%, the largest 1-month drop since December 2017. This was likely caused by a broadbased decline in US trade activity as more countries saw similar export pricing dynamics. Exports to Japan fell -3.4% and to Canada and the EU fell -1.9%. The effect was also likely exacerbated by a recent increase in oil and gas exports as domestic production remained around all-time highs for almost a year now.
Comments
Post a Comment